DECEMBER 21 2017

Ben S. Bernanke, PIIE: What Can Central Banks Do To Manage the Next Financial Crisis? Former Fed chairman Ben Bernanke discusses unconventional monetary policies and proposes a new framework for how central banks should manage severe recessions. He also argues for central bank independence to maintain long-term stability and forward-looking credibility.

Olivier Armantier, John J. Conlon, and Wilbert van der Klaauw, NY FED: Political Polarization in Consumer Expectations. Following the 2016 presidential election, as noted on this blog and many other outlets, Americans’ political and economic outlook changed dramatically depending on partisan affiliation. Immediately after the election, Republicans became substantially more optimistic relative to Democrats. In this blog post, we revisit the issue of polarization over the past twelve months using data from the New York Fed’s Survey of Consumer Expectations (SCE)—also the focus of a detailed technical overview in the latest edition of the Bank’s journal, the Economic Policy Review.

Peter Klenow, Stanford University: Examining the Slowdown in U.S. Rate of Growth:  It Has More to Do with Technology than with China. NBER reviews proposed causes of the United States' declining rate of growth: low growth at young firms, rapid spread of robots, the challenge from China. He and other researchers, whose work can be found on the Bureau's new page on Productivity and Growth, are increasingly focused on the impacts of technological change. The impacts of robotics and other new technologies are cause for concern, but not a reason to reject the changes, they argue. Reallocation of labor and creative destruction are essential to growth.

Nicholas Bloom, Charles I. Jones, John Van Reenen, Michael Webb, NBER: Are Ideas Getting Harder to Find? In many growth models, economic growth arises from people creating ideas, and the long-run growth rate is the product of two terms: the effective number of researchers and their research productivity. We present a wide range of evidence from various industries, products, and firms showing that research effort is rising substantially while research productivity is declining sharply. A good example is Moore's Law. The number of researchers required today to achieve the famous doubling every two years of the density of computer chips is more than 18 times larger than the number required in the early 1970s. Across a broad range of case studies at various levels of (dis)aggregation, we find that ideas — and in particular the exponential growth they imply — are getting harder and harder to find. Exponential growth results from the large increases in research effort that offset its declining productivity.

Oguzhan Akgun, Boris Cournède, Jean-Marc Fournier, OECD: The effects of the tax mix on inequality and growth. Can reforms that shift the balance among different taxes in the revenue mix lastingly influence the overall prosperity of an economy and the distribution of income across households? The present study takes this question to the data, using the experience of 34 OECD countries over 1980-2014 to assess the effects of changes in the tax structure on the long-term level of average output per capita and the distribution of disposable income across households. Changing the revenue mix while keeping government size constant typically lift long-term output per capita when they involve cuts in the labour tax wedge below or above average incomes, cuts in corporate income taxes or increases in property taxes. The relative-income effects of revenue-neutral reductions in labour tax wedges are broadly in line with intuition: the relative position of those benefitting from them typically improves. In absolute terms, however, nearly all the income distribution benefits from revenue-neutral reductions in labour tax wedges, be they focused on below or average income earners.

Gregori Galofré-Vilà, Christopher M. Meissner, Martin McKee, David Stuckler, NBER: Austerity and the rise of the Nazi party. It has been speculated that fiscally contractionary austerity measures, including spending cuts and tax rises, contributed to votes for the Nazi party especially among middle- and upper-classes who had more to lose from them. We use voting data from 1,024 districts in Germany on votes cast for the Nazi and rival Communist and Center parties between 1930 and 1933, evaluating whether radical austerity measures, measured as the combination of tax increases and spending cuts, contributed to the rise of the Nazis. Our analysis shows that chancellor Brüning’s austerity measures were positively associated with increasing vote shares for the Nazi party. Depending on how we measure austerity and the elections we consider, each 1 standard deviation increase in austerity is associated with a 2 to 5 percentage point increase in vote share for the Nazis. Consistent with existing evidence, we find that unemployment rates were linked with greater votes for the Communist party. The coalition that allowed a majority to form government in March 1933 might not have been able to form had fiscal policy been more expansionary.

Maria D. Fitzpatrick, Timothy J. Moore, NBER: The Mortality Effects of Retirement: Evidence from Social Security Eligibility at Age 62. Social Security eligibility begins at age 62, and approximately one third of Americans immediately claim at that age. We examine whether age 62 is associated with a discontinuous change in aggregate mortality, a key measure of population health. Using mortality data that covers the entire U.S. population and includes exact dates of birth and death, we document a robust two percent increase in male mortality immediately after age 62. The change in female mortality is smaller and imprecisely estimated. Additional analysis suggests that the increase in male mortality is connected to retirement from the labor force and associated lifestyle Changes.

Erich Battistin, Lorenzo Neri, IZA: School Performance, Score Inflation and Economic Geography. We show that grading standards for primary school exams in England have triggered an inflation of quality indicators in the national performance tables for almost two decades. The cumulative effects have resulted in significant differences in the quality signaled to parents for otherwise identical schools. These differences are as good as random, with score inflation resulting from discretion in the grading of randomly assigned external markers. We find large housing price gains from the school quality improvements artificially signaled by inflation as well as lower deprivation and more businesses catering to families in local neighborhoods. The design ensures improved external validity for the valuation of school quality with respect to boundary discontinuities and has the potential for replication outside of our specific case study.

Murat Iyigun, Nathan Nunn, Nancy Qian, NBER: The Long-run Effects of Agricultural Productivity on Conflict, 1400-1900. This paper provides evidence of the long-run effects of a permanent increase in agricultural productivity on conflict. We construct a newly digitized and geo-referenced dataset of battles in Europe, the Near East and North Africa covering the period between 1400 and 1900 CE. For variation in permanent improvements in agricultural productivity, we exploit the introduction of potatoes from the Americas to the Old World after the Columbian Exchange. We find that the introduction of potatoes permanently reduced conflict for roughly two centuries. The results are driven by a reduction in civil conflicts.

Zuzana Irsova, Tomas Havranek, Dominik Herman, Project Syndicate: Daylight saving saves no energy. The original rationale for daylight saving time was energy savings. This column reveals, however, that the modern empirical literature on the topic finds no savings on average. The extent of savings is related to latitude – regions at higher latitude enjoy slightly more savings, but subtropical regions consume more energy because of daylight saving time. Even in Scandinavia, the savings amount to just 0.3% of annual energy consumption. Policymakers must look at other effects of daylight saving time to justify the continued use of the policy.

Bjørn Lomborg, Project Syndicate: A Climate Cure Worse than the Disease. The climate policies lauded in Paris at the One Planet Summit this month are essentially high-cost, low-effect gestures. While the EU will devote 20% of its budget this year to climate-related action, even fully achieving the accord's emissions targets throughout this century would prevent just 0.053°C of global warming by 2100.

Hunt Allcott, Rebecca Diamond, Jean-Pierre Dubé, NBER: The Geography of Poverty and Nutrition: Food Deserts and Food Choices Across the United States. We study the causes of “nutritional inequality”: why the wealthy tend to eat more healthfully than the poor in the U.S. Using two event study designs exploiting entry of new supermarkets and households' moves to healthier neighborhoods, we reject that neighborhood environments have economically meaningful effects on healthy eating. Using a structural demand model, we find that exposing low-income households to the same food availability and prices experienced by high-income households would reduce nutritional inequality by only 9%, while the remaining 91% is driven by differences in demand. In turn, these income-related demand differences are partially explained by education, nutrition knowledge, and regional preferences. These findings contrast with discussions of nutritional inequality that emphasize supply-side issues such as food deserts.

David G. Blanchflower, Andrew J. Oswald,IZA: Unhappiness and Pain in Modern America: A Review Essay, and Further Evidence, on Carol Graham's Happiness for All? In Happiness for All?, Carol Graham raises disquieting ideas about today's United States. The challenge she puts forward is an important one. Here we review the intellectual case and offer additional evidence. We conclude broadly on the author's side. Strikingly, Americans appear to be in greater pain than citizens of other countries, and most sub-groups of citizens have downwardly trended happiness levels. There is, however, one bright side to an otherwise dark story. The happiness of black Americans has risen strongly since the 1970s. It is now almost equal to that of white Americans.

David Ignatius, Washington Post: How to protect against fake ‘facts’. Amid the slithering mess of problems that emerged in 2017, the one that bothers me most is that people don’t seem to know what’s true anymore. “Facts” this year got put in quotation marks. All the other political difficulties of the Donald Trump era are subsumed in this one. If we aren’t sure what’s true, how can we act to make things better? If we don’t know where we are on the map, how do we know which way to move? Democracy assumes a well-informed citizenry that argues about solutions — not about facts.

Tim Harford, The Undercover Economist: Fatal Attraction of Fake Facts Sours Political Debate. It is hard to overstate how corrosive this development is. Reasoned conversation becomes impossible; the debaters hardly have time to clear their throats before a fly-blown moggie hits the table with a rancid thud. Nor is it easy to neutralise a big, politicised lie. Trustworthy nerds can refute it, of course: the fact-checkers, the independent think-tanks, or statutory bodies such as the UK Statistics Authority. But a politician who is unafraid to lie is also unafraid to smear these organisations with claims of bias or corruption — and then one problem has become two. The Statistics Authority and other watchdogs need to guard jealously their reputation for truthfulness; the politicians they contradict often have no such reputation to worry about.

Scott Adams, Business Insider: The creator of Dilbert explains Trump's persuasion style and reminds us why people stopped caring about facts. In this excerpt from "Win Bigly," Dilbert creator Scott Adams says both he and Trump use the same method of persuasion. The method involves making claims that contain exaggerations or factual errors. Adams credits the method with raising his own profile ahead of the 2016 US presidential election — and with Trump's election win. Adams says he doesn't prefer to ignore facts. It's just that a "Master Persuader" can do it and still come out on top.